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One-Armed Nobel Candidate Economist Is Fired

By Shlomo Maital

           

        Paul Romer                              Paul Krugman

 

       Every day, members of my profession, economists, find new ways to make me deeply regret I ever became one. The latest episode is a story of two economists named Paul.

       President Harry Truman, the US President who suddenly and unexpectedly took office when President Roosevelt died in 1944, once said famously: “Give me a one-handed economist! All my economists say, ‘on the one hand…and, on the other’”.  

       Economists respond: “Give me a break, Truman!   We are objective professionals. Our job is to offer alternatives and explain the implications of each. YOU are an elected official. We are your servants. YOU are the one elected by the democratic process to choose and decide, not us! We simply show you the choices.”

         I myself used to repeat that mantra, during a year as head of an Israeli government planning body. But I soon learned – reality is different.   When economics is a value-free zone, it is useless to political leaders. State your values, state your position, clean up the jargon, speak in ordinary language, and keep one hand anchored deeply in your pocket.

     The Guardian now brings us a shocking, infuriating episode in which a future Nobel economist is fired for demanding clarity and truth. The economist is Paul Romer. In his Ph.D. dissertation, he built a powerful new theory now widely accepted, called “endogenous growth theory”. But another Paul, Paul Krugman, a Nobel laureate, has for over two decades been a beacon of clarity and one-armed economics.

       In brief: Since MIT economist Robert Solow, we’ve known that half or more of all economic growth is caused by technological change. But Solow treated it as ‘exogenous’, outside the system. Romer observed that technological change is endogenous – it is created by what we do, in education, innovation, and R&D, etc.   His two Journal of Political Economy articles published in 1986 and 1990, respectively, started endogenous growth theory and changed the world.   He will win a Nobel Prize soon for this. It has changed the way everyone thinks about pro-growth policies and plans.

The Guardian: “The chief economist at the World Bank has stepped down from its research arm after staff were vexed by demands to write succinctly, including cutting superfluous uses of the word “and” in reports or emails. Paul Romer, 61, will leave the Development Economics Group (DEC), according to a staff announcement reported by Bloomberg. He had asked for shorter emails, while also cutting staff off if they talked for too long during presentations, it said. In response to press inquiries about internal “objections to my insistence on clearer writing,” Romer published writing guidance he had issued to DEC staff on a blog on Thursday.   He said he suffered from dyslexia, making writing hard, but added “everyone in the Bank should work toward producing prose that is clear and concise. This will save time and effort for a reader. Thinking about the reader is an example of what I mean when I say that we should develop our sense of empathy.” Romer cut more US$1 million in annual expenses from the DEC budget, a body of more than 600 economists. But it appeared to be his attacks on convoluted, lengthy reports of that researchers took cause with. In an email to staff, Romer argued that the bank’s flagship publication, World Development Report, would not be published “if the frequency of ‘and’ exceeds 2.6 percent,” according to Bloomberg. He reportedly cancelled a regular publication that did not have a clear purpose.”

     “Romer is credited with the quote “A crisis is a terrible thing to waste,” which he said during a November 2004 venture-capitalist meeting in California. Although he was referring to the rapidly rising education levels in other countries compared to the United States, the quote became a sounding horn by economists and consultants looking for a positive take away from the economic downturn of 2007–2009.”

     Paul Romer wanted one-handed economists, who speak clearly, and paid the price. But is there a role-model for clear-thinking clear-speaking economics? There is. New York Times columnist Paul Krugman.

       The Economist: “From a mono-manual perspective, at least, Harry Truman would have loved Paul Krugman, an economist who rarely hesitates to take a bold position—even when the subject is himself. In recounting the transformation of his twice-weekly New York Times column from a genial discussion of the “New Economy” into a widely read broadside against the Bush administration, the Princeton professor recently described himself as “a lonely voice of truth in a sea of corruption.”  

     Krugman has blasted Trump and the Republicans, and identified their scorn for economic truth.

     In the 1930’s economics took a wrong turn. Influenced by the London School of Economics, economists decided to become like physicists and deal with only ‘pure science’, without ethical value judgments. At that moment, economics became irrelevant. And it remains so.

       I hope Romer wins the Nobel Prize later this year. In his acceptance speech, I hope he tears several strips off the moribund walking-zombie economists there, hundreds of them, a whole building full of them at 1818 H Street in downtown Washington. That building is a wasteland desert, even though it is in the heart of Washington.

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Forgotten Farmers

By Shlomo Maital

sheep

Today’s New York Times has an unusual Op-Ed piece by James Rebanks, a British sheep farmer, who lives in the lovely Lake District. (I recall hiking there, when I was a student at U. of Manchester 50 years ago). He is touring the US to promote his new book, a memoir, “The Shepherd’s Life”.

   Here is a key passage: “Economists say that when the world changes people will adapt, move and change to fit the new world. But of course, real human beings often don’t do that. They cling to the places they love, and their identity remains tied to the outdated or inefficient things they used to do, like being steel workers or farmers. Often, their skills are not transferable anyway, and they have no interest in the new opportunities. So, these people get left behind.”

     We economists spin theories from our comfy offices, about how the force of social Darwinism (competition for resources) drives efficiency. You’re a farmer? Herd sheep? Your country imports cheap mutton? Tough for you. Find another trade. That’s life.

     This is the economic theory. It’s time to rethink it.

       Economic freedom should also mean the freedom to choose our livelihood, and to engage in it as long as we wish.   Farmers are so few, so forgotten, and are so threatened..Rebanks writes about abandoned farms through the US, but who cares? Who even notices? America is flooded with cheap (and mostly unhealthy) food from abroad.

       Rural America matters.   So does rural EVERYwhere. Rebanks is right. Time to rethink the cruel free-market theory economists sold the world.

       Last Saturday (shabbat), I had the privilege to read a passage from the Bible, Kings 2, in our synagogue. The passage tells how young King Joash restores the Temple, by raising crowdfund money, “everyone according to his heart” and to his soul. Money. Heart. Soul. Those three things must go together in any economic system that claims to be just and fair.   An economic system without a heart or soul is unacceptable.

 

Nobel Prizes 2016

By Shlomo Maital

nobel-2016

This year’s Nobel Prize winners:

       Medicine/Physiology: Yoshinori Ohsumi, Japanese cell biologist. He discovered how cells recycle their wastes – an amazing and complex process that keeps cells from choking on garbage. Ohsumi asked a question that intrigued him, but that interested few others…

       Economics: Oliver Hart (Harvard) and Bengt Holmstrom (MIT): contract theory. Especially “incomplete contracts”.   See Hart’s American Economic Review 2001 article on financial contracting — enlightening, especially for Venture Capital.

       Physics:   David Thouless, F. Duncan Haldane, J. Michael Kosterlitz.   Their mathematics (based on topology) revealed insights into ‘extreme state’ matter (e.g. very low temperatures, super-cooled, etc.), and may lead to important new products, perhaps in semiconductors and computing.

       Chemistry:   Jean-Pierre Sauvage, J. Fraser Stoddart, Bernard Feringa:   synthesis of molecular machines. These tiny machines, the size of a single molecule, can do actual mechanical work. Also may lead to important innovations one day.

       Note the common denominator: Willingness to ask really good questions, questions others aren’t asking,   ability to take risks in research, tackle very challenging hard problems, and in some cases, defy the establishment by choosing a research direction others think is a dead end.

   And the Peace Prize? To Colombian President Santos, and the peace agreement that ended 50 years of senseless civil war. We learn from Colombia what we already know, from Britain’s Brexit vote – beware of referendums, you cannot be sure what they will yield.   Colombia will revote its peace agreement, narrowly defeated in a referendum, and gain approval. But Britain? Britain will leave the EU, for certain, a result very few expected, with major consequences for Europe and the world.  

Nobel Prize for Economics: Jean Tirole Takes on the Giants!

By Shlomo Maital

Tirole

Jean Tirole

  The Nobel Committee that selects winners for the Economics Prize has sent a message.  This year (today, actually) they announced the winner is Jean Tirole, a French economist, who teaches at Toulouse, and who studied at MIT.  He is honored for the following (according to the London Guardian):

  “This year’s prize in economic sciences is about taming powerful firms,” Staffan Normark, permanent secretary of the Royal Swedish Academy of Sciences, said as he named Tirole the winner of the 8m kroner (£700,000) prize.

Tirole, 61, began his work on regulation and oligopolies in the 1980s and published an influential book in 1993 with the late Jean-Jacques Laffont on regulation. The judges said Tirole is “one of the most influential economists of our time”.

 They added: “He has made important theoretical research contributions in a number of areas, but most of all he has clarified how to understand and regulate industries with a few powerful firms.”

   The panel said Tirole had shown the “deep and essential differences” between regulating companies in different sectors, such as telecom companies or banks. Imposing caps on prices could reduce the influence of monopolies in some sectors, but not in others, the judges said, pointing to Tirole’s use of game theory and contract theory.

    “In a paper last year, Tirole scrutinised, with Roland Bénabou, the pay and motivation structure  in industries such as banking. They write about a “bonus culture that takes over the workplace, generating distorted decisions and significant efficiency losses, particularly in the long run”.

Tirole did not share the prize but won it alone.   It is the first time since 1999 that an American has not at least shared the Economics Prize.  

   Will policymakers and politicians listen to Tirole?  Yesterday I spoke with a family friend, a lawyer, who is leading a class action suit against a Detroit mortgage bank.  He affirmed that the U.S. Justice Dept. has never prosecuted a single criminal case against Wall St. offenders, who nearly destroyed the world.  They’re just too powerful, he said.   Some groups spend $400,000 A DAY on lobbyists in Washington.  Apparently, it’s a good investment.     I am fantasizing a court case,  criminal case, in which Jean Tirole is called as a witness for the prosecution.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
September 2017
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